The Other Shoe

Working with a group of housing advocacy organizations including the Citizens Housing and Planning Council, the Partnership has enlisted the city’s former president of the Housing Development Corporation, Emily Youssouf, to propose some fixes that Washington could apply to address the issue.

Ms. Youssouf, who has been discussing the issue with the New York congressional delegation and federal and state agencies, said her focus has been on offering ways to get toxic apartment building loans refinanced at realistic values. By using and expanding existing programs so more loans on multifamily buildings can qualify for government backing of some sort, she said, banks would have an incentive to write down their holdings to the actual values, rather than keeping the old loans—with their unrealistic values—on their books.

Similarly, those pushing for more government assistance in the broader commercial real estate industry, of which multifamily buildings are a part, are looking to expand TALF and other programs, as without more action, all the forthcoming debt expirations could topple more banks and other lenders.

“This problem is going to keep getting worse,” said Bill Rudin, chairman of the Association for a Better New York and a major New York landlord.

There already seems to be a broader fatigue with putting additional government money at risk to cover private-sector losses, a clear obstacle to anyone pushing for starting new rescue programs.

So why should financial institutions get another round of government intervention—why not let the banks eat the losses? The argument by Mr. Rudin and others who want federal help is that lenders still cannot afford to take such losses, and the economy will be further destabilized as loans default and foreclosures mount over the next three or four years.

“TALF isn’t enough,” he said. “There needs to be other mechanisms to bring back liquidity. There needs to be some broader guarantee, backstop facility.

“If you don’t do this, you’ll waste the hundreds of billions of dollars,” Mr. Rudin said, referring to existing government money that’s been used to try to stabilize the economy.

WITHIN WASHINGTON, THE REAL Estate Roundtable, a trade group, has been pushing to extend TALF to the end of 2010—it recently was extended to March—along with other measures, including tax relief.

Of course, it’s not as though the Obama administration has ignored the issue. TALF was just extended in August, and on Sept. 15, the Internal Revenue Service changed a tax rule involving real estate mortgage investment conduits (REMICs) that makes it easier for some landlords to renegotiate and extend troubled loans.

But in recent weeks, it seems that federal officials have been preparing for more action on commercial real estate. Several top Obama officials publicly sounded alarms about the commercial real estate sector in various public appearances in September, noting that the problem is one that particularly affects smaller and regional lenders, which hold a good amount of the debt.

“It appears to be a problem whose locus is less towards the major, most systemically important financial institutions, and more toward regional and smaller banks,” Larry Summers, a top White House economic adviser, said of commercial real estate problems at a speech at Georgetown in mid-September.

“It is obviously something that is going to require—that has required and is going to … receive attention,” he said.